Young consumers turn to rental purchase plans
Jang was able to rent a water purifier, an air purifier, a 55-inch-screen television and a kimchi refrigerator on a three-year purchase plan. The total rent fee was 130,000 won ($122) a month, but with credit card discounts she pays 110,000 won. Jang is guaranteed free after-service care during the rental contract. When the three years are up, she gets to keep everything.
“They’re all going to be mine after three years, so I’m thinking I purchased them on a monthly installment plan with no interest,” Jang said.
Consumers are increasingly turning to rental services as a more affordable way to get high-end products. Professor Jung Yeon-sung of the business administration department at Dankook University explained, “Renting is more popular among people who wish to use quality goods or services but constantly stay under budget and try to spend as little as possible.”
Another possible explanation is the rise of single-person households. Those who live alone have less demands and resources to buy expensive electronics. The number of single-person households in the country has now reached 5.5 million, or 28.5 percent, according to Statistics Korea. This is double the number in 2000.
A report from the KT Economy & Management Research Lab said that the rental industry grew to 25.9 trillion won in 2016 from 19.5 trillion won in 2011. The market is expected to surpass 40 trillion won by 2020. Major companies are starting to take notice.
Having started a rental service with water purifiers in 2009, LG Electronics expanded the lineup of products last year to air purifiers, clothes dryers and the LG Styler, a wardrobe-like electronic device that steams clothes.
Lotte Rental, originally famous for its rental car business, launched Myomee, a comprehensive lifestyle rental service, in August. Last year, Lotte Rental raised 1.8 trillion won in sales and an operating profit of 129.7 billion won — 17 percent and 16 percent increases year on year.
CJ Hello, an operator of several cable channels under CJ Group, also started a rental business in February. It rents out tablet PCs and mattresses. Woongjin Group established Woongjin Rental last year, offering water purifiers, air purifiers, bidets and mattresses on its goods list.
In Korea, the word “rental” has long referred to a service which, from the consumer’s perspective, is closer to an installment plan — if the customer pays a monthly “rental” fee for a certain period of time, often several years, they will eventually own the product. The advantage is that they don’t need to put down a lump sum at the start. Unlike installment plans, these rental products don’t charge interest.
This particular model started in the late 1990s in the water purifier market. The strategy was to lower the price barrier and offer maintenance services as part of the service to lure consumers toward a product that wasn’t considered a necessity back then.
If a customer has a credit card that is partnered with the rental company, they may also receive a discount of a 10,000 or 20,000 won a month. During this “rental” period, charges on maintenance services like exchanging purifier filters and cleaning are included in the monthly payment plan.
However, problems arise if a customer wants to terminate the contract before the end date. If the product is big, the customer is likely to be hit with cancellation charges and service charges for the company to come and collect the item.
For example, if a massage chair is purchased on a three-year plan at 39,900 won a month, but if canceled after just one year, the customer will be hit with more than 700,000 won of charges.
BY CHOI HYUN-JU AND SONG KYOUNG-SON [email@example.com]
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